Shopify could lead the e-commerce recovery
Jamie Louko (Shopify): RBC Capital’s Paul Treiber has a price target of $60 on Shopify for the next 12 months, implying 101% growth from Shopify’s 52-week low of $29.84. This is undoubtedly optimistic, and it would represent a stellar performance.
Treiber might be so bullish for a few reasons. First, Shopify has plummeted, bringing what was once a highly-valued stock down to a relatively low valuation. It trades at 8.3 times sales -- nearly its lowest valuation since coming public in 2015. Right now, Shares of Shopify trade closer to its all-time low valuation than its average multiple over its life as a public company.
Shopify has seen some short-term pain, but the long-term future still looks bright. Recession fears have spooked e-commerce investors, which makes sense: As consumer budgets tighten, shoppers will likely spend less on discretionary goods, like those sold by e-commerce merchants. That said, the long-term future of e-commerce adoption looks good. By 2024, e-commerce is expected to represent 22% of global retail sales. That’s an increase from 18% in 2020.
Considering Shopify is one of the leading platforms for small businesses to create and grow their online commerce operations, the company could capitalize on this expansion. The company has millions of businesses worldwide using its platform, resulting in Shopify merchants representing over 10% of all U.S. retail e-commerce sales in 2021. This helped Shopify facilitate almost $47 billion in gross merchandise volume in Q2.
Treiber also might like Shopify because of its high switching costs. The company has products for nearly everything a merchant might need, from point-of-sale solutions to payment processing to capital loans. It even started offering fulfillment services, where Shopify handles all the shipping and returns logistics for its merchants. This makes it tough to leave Shopify once a customer begins to rely on all these tools. Therefore, there’s a good chance Shopify’s merchant count will continue to grow, even during this precarious time for e-commerce businesses.
